Office Performance

As economic turmoil hit the UK, many businesses were forced to downsize or relocate to cheaper premises, causing increasing levels of accommodation to come to the market. Total supply in the south east increased to 1.5mm² (15.8mft²) in the first period of 2009, an increase of 6% on the previous quarter. In Sevenoaks, BT has vacated 4,150m² (44,670ft²) on the second floor of their headquarters - the space is available via a sublease – but Kent availability levels are manageable.

With augmenting levels of stock and diminishing requirements, landlords have been forced to offer extensive incentive packages to attract potential occupiers and maintain headline rents. Flexible, short term lettings are now becoming the norm, particularly for secondary accommodation. In Maidstone, a one year licence was granted to Bennett & Co Solicitors for 117m² (1,258ft²) at Cornwallis House. Further flexibility is being offered to those looking for space in the town centre, with several ‘business centres’ offering serviced suites for immediate occupation. At Colman House and Concorde House, quoting rents are £113.00m² (£10.50ft²) and £134.55m² (£12.50ft²) respectively, inclusive of service charges.

Take-up for smaller office premises of 46m² - 465m² (500 - 5,000ft²) has remained stable, whilst demand for larger suites has reduced. Institutional occupiers have produced some demand for sizeable space, although even this has reduced compared to previous years. In Canterbury, Canterbury Christ Church University has taken 2,628m² (28,292ft²) of space at Rutland House at a headline rent of £350,000 per annum for a 20 year term with a break at the fifteenth year. In Maidstone, the NHS Trust South East Coast Ambulance Service has taken 734m² (7,900ft²) of space at Galleon House for a five year term.

Capital and County, independent commercial insurance brokers, purchased offices developed by George Wilson Holdings at Jubilee Way on Faversham’s Euro Centre site in February 2009.

Speculative development has been limited. A new high quality office scheme was completed in February 2009 at Eurokent Business Park in Ramsgate. The 1,040m² (11,190ft²) of offices and 2,209m² (23,780ft2) of industrial units was developed by SEEDA with Thanet District Council, and has a number of potential occupiers. Hermitage Court in Maidstone is now complete comprising 1,138m² (12,250ft²) of high quality office accommodation designed in the Kentish Oast House style. Also in Maidstone a new 279m2 (3,000ft2) data centre has been built at Maidstone Studios. The centre is designed to minimise its carbon footprint using the latest combined free air/fresh air technology and dx system, making it twice as efficient and more cost effective than similar centres. The centre has one major client and several SME clients.

Office investment transactions have been sparse over the past year. UK-wide, the value of office investments at the beginning of 2009 fell to just over £1bn, the lowest quarterly total since the property data series began. Office sector yields continued to rise during 2009, albeit at a slower rate than in the last quarter of 2008. Yields have stabilised for prime offices let to quality covenants, but yields for smaller town centres and secondary locations continue to rise. Total returns for the office sector are expected to be -12% in 2009 but with yields stabilising in 2010, returns should become positive once more.

In Kent, properties let on long leases with solid covenants are receiving renewed interest. In Canterbury, Axa Sunlife Pension Scheme (Private Funds), sold 87 St Dunstan’s Street to Cranmer Investments for £625,000, reflecting a net initial yield of 6.56%. The property is currently let to Spain Brothers & Co for a 10 year term at a passing rent of £41,000 per annum.

Lettings

Location	Landlord	Tenant	Size m2 (ft2)	Rent	Lease Term	Agent
Rutland House, Canterbury	Private	Canterbury Christ Church University	28,292	£350,000	20 years with a tenant’s break option at year 15	Strutt and Parker
Towergate House, 20/20 Estate, Maidstone	Towergate Underwriting Group Ltd	Evolution Underwriting Group Ltd	4,762	£60,000	10 years	Martine Waghorn
Mill House, 26/30 Mill Street, Maidstone	Private	Kent Council Addiction Services	6,055	£45,000	10 years with a tenant’s option at year 5	Martine Waghorn
Unit 8 Watermark, Sittingbourne	Highcross and Cantium Developments	C Watkins Plumbing	3,092	£13.95 per sq ft headline rent	5 years	Watson Day Harrisons BNP Paribus Real Estate

Sales

Location	Vendor	Purchaser	Size m2 (ft2)	Tenant	Price	Income	Yield	Agent
Drake House, Anchor Boulevard, Crossways, Business Park, Dartford	Barclays Banks Plc	Worshipful Company Of Dyers	14,980	-	£3.91m	-	7.70	BNP Paribus Real Estate Marquis & Co
9 St Georges Place, Canterbury	Quinn Wilson Developments	Girne American University (GAU)	14,000	-	£2.95m	-	-	Mark Quinn
Mill House, 26/30 Mill Street, Maidstone	Private	Private	6,055 (Office accommodation only)	Multi-tenanted	£800,000	£87,000 (£45,000 attributable to the offices, £42,000 to the retail units)	10.88	Barnett Ross
87 St Dunstans Street, Canterbury	Axa Sunlife Pension Scheme (Private Funds)	Cranmer Investments	7,249	Spain Brothers & Co	£625,000	£41,000	6.56	Cluttons LLP
Gazette Building, Union Row, Margate	KRN Media	Private	3,867	-	£249,995	-	-	Pearson Gore